The Retirement Heist

[Texas Proud]

What is so hard to understand about keeping promises and honoring contracts? Is money the only way we measure what is right or wrong?

I guess I am old fashioned.
I think people should put a real effort into their job to earn their pay.
I think people should pay their mortgage even if the house has lost value.
I think companies and governments should properly fund their pensions on a yearly basis and not tamper with the funding.

Why is this so hard for so many people, including those in business who claim to favor capitalism, to understand?

Unless you have a signed employee contract that says they can not change the pension, they are not breaking a contract... all pension plans have language in them that allows them to change it... it is in the contract as you would say...

I would agree with you for compensation that is earned and paid out on a regular basis. For example, I worked this month and my company pays me a month's wages and provides a month's worth of health insurance and credits me with as month's worth of vacation pay. But, I also earned a month's more pension credit, but that is not paid to me for many, many more years. A pension is different in respect that it is DELAYED COMPENSATION. Thus, it must be treated differently and should not be subject to changes like pay and other benefits.

Why is it so hard to understand that the pension is part of what we earn today and should not be taken away? How can one justify retroactively changing the rules to take away what has already been earned?

Again, you seem to be saying they are 'retoactively' changing the pension rules... they are not... the are changing them subsequently.... everything that you earned to the date of chage you get to keep... it is yours...

What they have done is change your new delayed compensation...

Would you suggest that they do not have a right to change your current salary If you say they can, then why could they not change your current delayed compensation in a similar manner

 

[Texas Proud]

This discussion is certainly a good one. I draw four conclusions from it:

1. We must all, at times, agree to disagree, agreeably.


2. Better economic times will solve many of these problems or keep them from becoming problems in the first place. That should be our great goal.

3. None of us sees the point in a race to the bottom for any of us.


4. Over coffee, I suspect we all have more in common than what we see on a web based forum. This medium does tend to depersonalize us.

1. Agree

2. Disagree.... most of the private pension plans were changed or closed down when times were good... if the economy turned around today and things were good, we would not see a bunch of companies starting up DB pension plans... they are dead....

3. Agree, but we can not ignore global competition...

4. Agree also...

 

[Texas Proud]

Having worked in corporate finance and done the math on this in real life, I'll take that bet anyday. Note in my previous post Could be 15. Graphing two curves, the benefit value curve is "S" shaped with two inflection points while the cost curve tends to closer to a straight line. There is no doubt that in the range around 10-15 years, the actual benefit accrued to the worker is less that the straight line cost booked. The benefit to the employee kicked up in the final years due to the combination of average final salary and years of service.

The S&P lived an entire decade off of this and some companies are still playing with the pension numbers, although there is not much left. More than any other financial maneuver, clawing back pension cost is what allowed companies to smooth their quarterly earnings.

I have also worked in finance.... and of the two megas that I worked with, neither booked the pension plan as a straight line expense..

Both booked thier pension plan on a current payout calculation... if you had 15 years of service, the expense was as if you would quit and they would have to pay out based on the earned benefit...

I will have to go back and see if I can find the post you mention.... maybe I am not understanding what you are trying to say....

 

[Texas Proud]

Sorry, but what happened wasn't purely age discrimination, it was still based on attempting to reduce what was earned, and it more dramatically affected the long standing employees who were smart enought to recognize the charade that was attempted and banding together in a class action suit against there one time fair company.

You and I obviously have a totally different value system and I see no point in going back and forth with you. Enjoy your weekend.

I have not gone back and looked at the IBM case... but from memory what most of the companies did was calculate the cash balance at less then what it would cost to provide them a pension on that day... I bet IBM did badly.... but the law says that the employee gets the higher of the cash balance OR the pension plan... IOW, if the employee quit the day they changed the plan, he would get the higher amount that was earned...

What does this mean... it means that an employee that worked at IBM was not earning any new pension benefits under the new plan because his benefit under the old plan was higher... I will agree that this is not 'fair' to older employees.... but other companies did the same thing and did not lose in court... my mega was sued under the same principal, but did not lose...

I had also pointed out in one of my posts that this was a remedy of employees that think they did not get what they earned... and many companies have been taken to court.. a few lost, many more won....

 

[ERD50]

In other words, an employee with 20 years had very little vested and accrued pension benefit ...

Really? I obviously don't know the details of every pension plan out there, but I'd bet my MegaCorp was pretty representative of those that offered pensions, and it worked nothing like that.

Having worked in corporate finance and done the math on this in real life, I'll take that bet anyday. ... .

Maybe we are talking different things here. I was saying that the employees pension benefit does not change that much over a few years - there is no sharp inflection point. Maybe you are talking about it from the funding requirement side?

I can see where that would not be linear. If there is a 5 year vesting period, some % of new employees will not become vested, so I guess the funding for <5 year employees could be relatively low, and then would increase pretty sharply at 5 years. But going from 28 years to 30 years doesn't seem like any big deal. Sure, the average wage will likely increase, so there is a double effect of increased wage calculation plus the 30/28 effect.

But to your first statement, it looks to me that someone with 20 years would have 20/30s, the pension of someone with 30 years, at the same final average earnings. Once vested, you are vested, and all the years count. That seems reasonable to me, and not 'very little'.

-ERD50

 

[eytonxav]

I have not gone back and looked at the IBM case... but from memory what most of the companies did was calculate the cash balance at less then what it would cost to provide them a pension on that day... I bet IBM did badly.... but the law says that the employee gets the higher of the cash balance OR the pension plan... IOW, if the employee quit the day they changed the plan, he would get the higher amount that was earned...

What does this mean... it means that an employee that worked at IBM was not earning any new pension benefits under the new plan because his benefit under the old plan was higher... I will agree that this is not 'fair' to older employees.... but other companies did the same thing and did not lose in court... my mega was sued under the same principal, but did not lose...

I had also pointed out in one of my posts that this was a remedy of employees that think they did not get what they earned... and many companies have been taken to court.. a few lost, many more won....

There are generally several ways a company could handle these CB conversions according to Towers Perrin:

1. Offer individuals a choice between the new and old programs. This is done with a one-time election. "It's not that common because it tends to be fairly expensive,"
2. Identify individuals who will be adversely affected by the new plan and grandfather them for a period of time under the old plan. "Typically, individuals within 5 or 10 years of retirement are offered this protection," "When those individuals leave the company, you calculate their benefits under both plans and give them the greater benefit. There tends to be a time limit on such transitions, so the group that is grandfathered will have 5 to 10 years of protection."
3. Freeze current benefits under the existing arrangement. "Under this option no one has wear-away," "Whenever the employee leaves, he or she collects that frozen benefit. In addition, the employee receives credit for future service under the cash balance plan, effectively receiving his or her retirement benefit in two pieces. That doesn't mean the individual will receive as good a benefit in the future as he or she would have had the traditional plan continued, but the employee will continue to see the benefit increase at all times in the future."

What you have been repeatedly saying is described in 3. above and there is nothing wrong with that legally speaking, but what you don't seem to accept is that many companies did not do that and tried to take away $s from what was already earned based on past service and past formula and many were successfully sued for doing that (thats why its called a heist, and further the motivation was often times a self serving one by the executive class). Many of these cases took place back in the 90s and early 2000s, and I believe subsequent penison legislation has been enacted to preclude some of the unscupulous activites that companies tried to get away with. That said, its probably still reasonable to quibble with 3. based on fairness/equity grounds, especially when a select class of execs benefited to everyone else's detriment.

As has already been pointed out, we are beating a dead horse here and the horse seems to have blinders on as well.

 

[HFWR]

Maybe we are talking different things here. I was saying that the employees pension benefit does not change that much over a few years - there is no sharp inflection point. Maybe you are talking about it from the funding requirement side?

-ERD50

Most pensions of which I'm familiar do exactly that. My pension, when it was frozen, was worth about $22k, with 15 years of service. Didn't make the big jump until you reached 55, and 25 years of service... This is specifically why they bridged those lucky enough to be over 50 when they were canned to age 55...

 

[GregLee]

Offer individuals a choice between the new and old programs. This is done with a one-time election. "It's not that common because it tends to be fairly expensive,"

My Hawaii state pension system offered employees a choice between taking out the cash value of their pensions and (presumably) investing it for their future retirement, with a pension having greatly reduced benefits, or continuing on the pension plan as they had been.. I think that was in 1986, after I had been paying into the system for 15 years.. Since the interest increase being given on the pension value was only 1-2%, my fellow workers mostly did take the buyout offer, thinking they could do better in the market or real estate.. I left my money in the pension system, though.

 

[Texas Proud]

There are generally several ways a company could handle these CB conversions according to Towers Perrin:

1. Offer individuals a choice between the new and old programs. This is done with a one-time election. "It's not that common because it tends to be fairly expensive,"
2. Identify individuals who will be adversely affected by the new plan and grandfather them for a period of time under the old plan. "Typically, individuals within 5 or 10 years of retirement are offered this protection," "When those individuals leave the company, you calculate their benefits under both plans and give them the greater benefit. There tends to be a time limit on such transitions, so the group that is grandfathered will have 5 to 10 years of protection."
3. Freeze current benefits under the existing arrangement. "Under this option no one has wear-away," "Whenever the employee leaves, he or she collects that frozen benefit. In addition, the employee receives credit for future service under the cash balance plan, effectively receiving his or her retirement benefit in two pieces. That doesn't mean the individual will receive as good a benefit in the future as he or she would have had the traditional plan continued, but the employee will continue to see the benefit increase at all times in the future."

What you have been repeatedly saying is described in 3. above and there is nothing wrong with that legally speaking, but what you don't seem to accept is that many companies did not do that and tried to take away $s from what was already earned based on past service and past formula and many were successfully sued for doing that (thats why its called a heist, and further the motivation was often times a self serving one by the executive class). Many of these cases took place back in the 90s and early 2000s, and I believe subsequent penison legislation has been enacted to preclude some of the unscupulous activites that companies tried to get away with. That said, its probably still reasonable to quibble with 3. based on fairness/equity grounds, especially when a select class of execs benefited to everyone else's detriment.

As has already been pointed out, we are beating a dead horse here and the horse seems to have blinders on as well.

Just to be clear on this... what I described is #3 as you have mentioned... but there is a twist to it... a number of companies would convert that to a dollar figure and then say 'your cash balance is now $XXX'.... but that $XXX would not buy an annuity to cover the frozen benefits..... this would then mean that if the worker continues to work and get pay credits and earnings on their cash balance, it might take years before that cash balance grows to a point where it can buy that annuity that the person had earned... IOW, they can work for many years and not get a single penny in higher pension....

This is very true... and the worker has to decide if they want to work for such a company... I would not...

But, if that person left the company and went somewhere else... the pension earned is still payable... the law states that the person gets the higher amount of the frozen pension or the annuity based on the cash balance account... therefore, nothing earned was taken away, but if they continued to work for the company it meant that they might work for many years with NO increase in pension benefits... I do not like this kind of trickery either.... and the worst of the companies lost in court....


Now, the best option would be a true #3 where your past benefit is frozen and a brand new account with a zero balance is started up so you really do have two separate accounts and you would still be earning some kind of pension benefit for all years worked...

 

[eytonxav]

DFW, your call for thoughts and discussion of the book (your initial post) doesn't seem sincere in light of your persistent defense of the authors sensationalistic presentation (designed to sell books, of course). Not everyone agress with you that all companies and all management teams conspired to screw employees. And I don't think that all companies/managers did either. I do agree there are some examples, such as IBM, that requred significant corrective action by the courts.

There will always be different viewpoints on any position, and just because I do not side with you, Texas Proud, and ERD50 should not be cause to call me insincere. Further, please show me where I said all companies and all management teams conspired to screw employees. I did say many have, so if anything, this continuing to put words in my mouth and twist what I said is truly insincere and seeks to beat a dead horse.

 

[MichaelB]

Folks, it's been a great thread. Many thanks to all that participated.
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